Investments in three coal-fired power generation technologies are valued using the "real options" valuation methodology in an uncertain carbon dioxide (CO2) price environment. The technologies evaluated are pulverized coal (PC), integrated coal gasification combined cycle (baseline IGCC), and IGCC with pre-investments that make future retrofit for CO2 capture less expensive (pre-investment IGCC). All coal-fired power plants can be retrofitted to capture CO2 and can be considered "capture-capable", even though the cost and technical difficulty to retrofit may vary greatly. However, initial design and investment that take into consideration such future retrofit, makes the transition easier and less expensive to accomplish. Plants that have such an initial design can be considered to be "capture-ready". Pre-investment IGCC can be considered to be "capture-ready" in comparison to PC and baseline IGCC on this basis. Furthermore, baseline IGCC could be taken as "capture-ready" in comparison to PC. Cash flow models for specific cases of these three technologies were developed based on literature studies. The problem was formulated such that CO2 price is the only uncertain cash flow variable. All cases were designed to have a constant net electric output before and after CO2 retrofit. As a result, electricity price uncertainty had no differential impact on the competitive positions of the different technologies. While coal price was taken to be constant, sensitivity analysis were conducted to show the impact of varying coal prices. Investment valuation was done using the "real options" approach.
(cont.) This approach combines (i) Market Based Valuation (MBV) to valuing cash flow uncertainty, with (ii) Dynamic quantitative modeling of uncertainty, which helps model dynamic retrofit decision making. The thesis addresses three research questions: (i) What is the economic value of temporal flexibility in making the decision to retrofit CO2 capture equipment? (ii) How does the choice of valuation methodology (DCF v. MBV) impact the investment decision to become "capture-ready"? (iii) Among the coal-fired power plant technologies, which should a firm choose to invest in, given an uncertain CO2 policy? What are the economic factors that influence this choice? The answers to the research questions strongly depend on the input assumptions to the cash flow and CO2 price models, and the choice of representative cases of the technologies. For the specific cases analyzed in this thesis, it was found that investing in "capture-ready" power plants was not economically attractive.

Wind resource in the continental and offshore United States has been reconstructed and characterized using metrics that describe, apart from abundance, its availability, persistence and intermittency. The Modern Era Retrospective-Analysis for Research and Applications (MERRA) boundary layer flux data has been used to construct wind profile at 50m, 80m, 100m and 120m turbine hub heights. The wind power density estimates at 50m are qualitatively similar to those in the US wind atlas developed by the National Renewable Energy Laboratory (NREL), but quantitatively a class less in some regions, but are within the limits of uncertainty. The wind speeds at 80m were quantitatively and qualitatively close to the NREL wind map. The possible reasons for overestimation by NREL have been discussed. For long tailed distributions like those of the wind power density, the mean is an overestimation and median is suggested for summary representation of the wind resource. The impact of raising the wind turbine hub height on metrics of abundance, persistence, variability and intermittency is analyzed. There is a general increase in availability and abundance of wind resource but the there is an increase in intermittency in terms of level crossing rate in low resource regions. The key aspect of geographical diversification of wind farms to mitigate intermittency - that the wind power generators are statistically independent - is also tested. This condition is found in low resource regions like the east and west coasts. However, in the central US region which has rich resource the condition fails as widespread coherent intermittence in wind power density is found. Thus large regions are synchronized in having wind power or lack thereof. Thus, geographical diversification in this region needs to be planned strategically. The annual distribution of hourly wind power density shows considerable variability and suggests wind floods and droughts that roughly correspond with La-Nina and El-Nino years respectively. The collective behavior of wind farms in seven Independent System Operator (ISO) areas has also been studied. The generation duration curves for each ISO show that there is no aggregated power for some fraction of the time. Aggregation of wind turbines mitigates intermittency to some extent, but each ISO has considerable fraction of time with less than 5% capacity. The hourly wind power time series show benefit of aggregation but the high and low wind events are lumped in time, thus corroborating the result that the intermittency is synchronized. The time series show that there are instances when there is no wind power in most ISOs because of large-scale high pressure systems. An analytical consideration of the collective behavior of aggregated wind turbines shows that the benefit of aggregation saturates beyond ten units. Also, the benefit of aggregation falls rapidly with temporal correlation between the generating units.

Climate and energy security concerns have prompted policy action in the United States and abroad to reduce petroleum use and greenhouse gas (GHG) emissions from passenger vehicles. Policy affects the decisions of firms and households, which inevitably react to changing constraints and incentives. Developing and applying models that capture the technological and behavioral richness of the policy response, and combining model insights with analysis of political feasibility, are important agendas for both research and policy. This work makes four distinct contributions to these agendas, focusing on the case of climate and energy policy for passenger vehicles in the United States.

First, this work contributes to econometric studies of the household response to gasoline prices by investigating whether or not U.S. households alter their reliance on higher fuel economy vehicles in response to gasoline price changes. Using micro-level household vehicle usage data collected during a period of gasoline price fluctuations in 2008 to 2009, the econometric analysis shows that this short-run vehicle switching response, while modest, is more pronounced for low income than high income households, and occurs on both a total distance and per trip basis.

Second, this work makes a methodological contribution that advances the state of empirical modeling of passenger vehicle transport in economy-wide macroeconomic models. The model developments include introducing an empirically-based relationship between income growth and travel demand, turnover of the vehicle stock, and cost-driven investment both in reduction of internal combustion engine (ICE) vehicle fuel consumption as well as in adoption of alternative fuel vehicles and fuels. These developments offer a parsimonious way of capturing important physical detail and allow for analysis of technology-specific policies such as a fuel economy standard (FES) and renewable fuel standard (RFS), implemented individually or in combination with an economy-wide cap-and-trade (CAT) policy. The new developments within the model structure are essential to capturing physical system constraints, interactions among policies, and unintended effects on non-covered sectors.

Third, the model was applied to identify cost-effective policy approaches in terms of both energy and climate goals. The RFS and FES policies were shown to be at least six to fourteen times as costly as a gasoline tax on a discounted basis in achieving a 20% reduction in cumulative motor gasoline use. Each of these policies was shown to have only a small effect on economy-wide carbon dioxide emissions. Combining a fuel economy standard and a renewable fuel standard produced a gasoline reduction around 20% lower than the sum of forecasted reductions under each of the policies individually. Under an economy-wide CAT policy that targets GHG emissions reduction at least cost, obtaining additional reductions in passenger vehicle gasoline use with RFS or FES policy increases the total policy cost, and does not result in 4 of 225 additional reductions in GHG emissions. The analysis shows the importance of integrated assessments of multiple policies that act on separate parts of a system to achieve a single goal, or on the same system to achieve distinct goals.

Fourth, a political analysis shows how, in the case of climate and energy policy for passenger vehicles, sharp trade-offs exist between economic efficiency and political feasibility. These tensions are shown to exist at the level of policy justification, policy type, and design choices within policies. The pervasiveness of these tensions suggests that economically-preferred policies will face the greatest barriers to implementation.

This work concludes by integrating the findings from each of the individual parts to make recommendations for policy. Recognizing the heterogeneity of household responses, the prescriptions of the economic analysis, and the tensions between these prescriptions and political considerations, policy options should be evaluated not only based on cost effectiveness, but also on their ability to serve as stepping stones toward desirable end states by providing incentives to revisit and increase policy cost effectiveness over time.

In 2003 Japan proposed a Climate Change Tax to reduce its CO2 emissions to the level required by the Kyoto Protocol. If implemented, the tax would be levied on fossil fuel use and the revenue distributed to several sectors of the economy to encourage the purchase of energy efficient equipment. Analysis using the MIT Emissions Prediction and Policy Analysis (EPPA) model shows that this policy is unlikely to bring Japan into compliance with its Kyoto target unless the subsidy encourages improvement in energy intensity well beyond Japan's recent historical experience. Similar demand-management programs in the U.S., where there has been extensive experience, have not been nearly as effective as they would need to be to achieve energy efficiency goals of the proposal. The Climate Change Tax proposal also calls for restricting Japan's participation in the international emission trading. We consider the economic implications of limits on emissions trading and find that they are substantial. Full utilization of international emission trading by Japan reduces the carbon price, welfare loss, and impact on its energy-intensive exports substantially. The welfare loss with full emissions trading is one-sixth that when Japan meets its target though domestic actions only, but Japan can achieve substantial savings even under cases where, for example, the full amount of the Russian allowance is not available in international markets.